United States: Two Recent New York Decisions Provide Guidance On FCPA’s Reach Over Foreign Nationals

Two recent decisions from the Southern District of New York
provide some guidance on limits to the US government's ability
to prosecute foreign nationals under the Foreign Corrupt Practices
Act. The first decision, SEC v. Straub, et al.,1
supports the government's long-held view that the FCPA applies
broadly to foreign nationals involved in foreign bribery schemes -
regardless of the defendant's direct contacts with the United
States - and significantly limits a foreign defendant's ability
to assert a statute-of-limitations defense. The second decision,
SEC v. Sharef et al.,2 on the other hand, makes clear
that the FCPA's reach does have limits under principles of
personal jurisdiction.

The Straub Case

In Straub, the defendants were executives at Magyar Telekom, a
telecommunications company. The defendants allegedly bribed public
officials in Macedonia to mitigate the effects of a new law, which
subjected Magyar to increased competition in the Macedonian
telecommunications market. At the time of the alleged bribes,
Magyar and its parent, Deutsche Telekom, were publicly traded on
the New York Stock Exchange and registered with the SEC. The
government alleged that the bribes were recorded in the
corporations' books and records "in a manner that did not
reflect the true purpose of the contracts." Further,
defendants allegedly provided false management representation
letters to Magyar's auditors. According to the SEC's
complaint, had Magyar auditors known these facts, "they would
not have ... provided an unqualified audit opinion to accompany
Magyar['s] annual report [to the SEC]."

Defendants first moved to dismiss on personal jurisdiction
grounds. During the proceedings, the SEC told the court that the
jurisdictional theory the SEC was advocating "may be breaking
new ground." But Judge Richard Sullivan disagreed, holding
that the court had jurisdiction over the defendants because
"their concealment of [the] bribes, in conjunction with
Magyar's SEC filings, was allegedly directed toward the United
States." The court characterized as "overblown" the
defendants' argument that the court's ruling would mean
that "any individual director, officer, or employee of an
issuer in any FCPA case" would be subject to personal
jurisdiction. The court stated that it was not "creat[ing] a
per se rule regarding employees of an issuer but rather bas[ing]
its decision on a fact-based inquiry." The court's
opinion, however, alluded to few, if any, limiting principles on
the SEC's broad view of personal jurisdiction.

The defendants also moved to dismiss on statute of limitations
grounds. The court acknowledged that "[i]t [wa]s undisputed
that more than five years ha[d] elapsed since the SEC's claims
first accrued." Nevertheless, the court held that, under the
plain language of the catch-all limitations period set forth in 28
U.S.C. § 2462, "an offender must be physically present in
the United States for the statute of limitations to run."

The Sharef Case

In Sharef, the defendant was an executive working for an
Argentine subsidiary of Siemens, a German corporation. According to
the SEC's complaint, between 1996 and 2007, Siemens paid more
than $100 million in bribes to government officials in Argentina.
The SEC did not allege that the defendant had been directly
involved in authorizing or paying the bribes. Instead, the
complaint alleged that a Siemens managing board member recruited
defendant to facilitate the bribes because of his longstanding ties
to government officials in Argentina. The bribes were allegedly
authorized by top executives at Siemens and members of its managing
board. According to the complaint, approximately $31.3 million of
the bribes occurred after March 12, 2001 - when Siemens became
subject to US securities laws - and, in the course of paying these
bribes, Siemens made false certifications to the SEC.

Defendant moved to dismiss on personal jurisdiction grounds and
Judge Shira Scheindlin granted the motion. Citing Straub, the court
noted "[i]t is by now well-established that signing or
directly manipulating financial statements to cover up illegal
foreign action, with knowledge that those statements will be relied
upon by United States investors satisfies th[e] [personal
jurisdiction minimum contacts] test." The court concluded,
however, that the "exercise of jurisdiction over foreign
defendants based on the effect of their conduct on SEC filings is
in need of a limiting principle." The court distinguished
Straub, noting that the defendant "neither authorized the
bribe, nor directed the cover up, much less played any role in the
falsified [SEC] filings."

The court also pointed out that the SEC had not "alleged
that [defendant's] position as Group President of [the] Siemens
[subsidiary] would have made him aware of, let alone involved in
falsification of these filings." Finally, the court
acknowledged that the complaint alleged that defendant had calls
with a Siemens official in New York regarding the bribery scheme
and that a portion of the bribery payments were deposited in a New
York bank. But these facts did not alter the court's analysis
since the defendant "did not place the calls" to New
York, nor did the defendant "direct that the funds be routed
through a New York bank."

Bolstering its conclusion, the court noted that exercising
personal jurisdiction over the defendant would be unreasonable. The
court noted defendant's "lack of geographic ties to the
United States, his age, his poor proficiency in English, and the
forum's diminished interest in adjudicating the matter ...
[since the United States government] ha[d] already obtained
comprehensive remedies against Siemens' and Germany ha[d]
resolved an action against [defendant] individually."

CONCLUSION

The Second Circuit will likely weigh in on these issues and
provide additional guidance in this complex area of law. As Judge
Scheindlin wrote in Sharef, "under the SEC's theory [of
personal jurisdiction], every participant in illegal action taken
by a foreign company subject to U.S. securities laws would be
subject to the jurisdiction of U.S. courts no matter how attenuated
their connection with the falsified financial statements." The
Straub decision provides some support for the SEC's expansive
view. And both Straub and Sharef make clear that the SEC is
aggressively enforcing the FCPA without regard to a foreign
defendant's direct contacts with the United States. Further,
the Straub decision all but eliminates a statute of limitations
defense for a foreign national as long as the individual remains
outside the United States. Thus, in light of Straub, companies
operating in foreign places should address all allegations that
raise potential FCPA concerns, no matter how long ago the alleged
misconduct occurred.

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In the past year, a number of major financial institutions have
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The combination of resolved actions, ongoing criminal and regulatory investigations, guidance issued by regulatory authorities, and other developments discussed below underscore a number of important themes of which companies should be aware.

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